Volatility Intraday Trading
Volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices. Volatility is normally expressed in annualized terms, and it may either be an absolute number (Rs. 5) or a fraction of the mean (5%).
How to use this calculator
1. To use this calculator you need the previous day closing price and current day’s prices.
2. Now let us see how to use this calculator. Lets say we want to find the values for Nifty Futures for today (08/04/2010) at 10.00 am.
3. I will first see the close price of Nifty Futures for previous day. (Close price is 5381)
4. To Find the volatility, I open the Get Quote for Nifty Future on www.nseindia.com. At the bottom, i see the volatilty at 0.86
5. After entering the Closing Price, volatility as seen in www.nseindia.com, I will enter current days high (5370), low (4348) and last traded price (5355.15).
6. I calculate the levels using the button.
7. I get the message as
Sell at / below 5359 for following Target and stoploss
8. The Nifty Futures crashed to 5290.10. Target 1, Target 2, Target 3 and Target 4 were achieved.
How this system works
We have seen that many traders never make any success in intraday trade. Learning little and simple technique can make someone a winner in intraday trading. Here is one such simple technique to use for intraday trading.
Interpret the daily volatility. It is the parameter which will gives you the most likely move the scrip can swing in a day. In this case the term “swing” means high and low difference in a day.
Then the next question is how to find the volatility. You need to refer to the daily volatility column given in the NSE site against your scrip or you may click here for the pictorial guide. I have taken the same to explain this concept to you. You may get a figure 0.86 for 8th April 2010 price quote in the bottom of the page. In other words it says the nifty future has the potentiality to generate 0.86% returns today either in the buy side or in sell side. For example if the midpoint between today’s high and low in Nifty future is 5350 it may generate 5350X0.86%=46 points return either side. This small arithmetic information is sufficient enough for us to take a wise trade decision.
This same trick can me applied to all the stocks just by referring its daily volatility and applying the mid point concept on it. Try to use the above discussed technique in Nifty Future or on any liquid stocks or futures and experience the success.
Tags: intraday calculation based on volatility, volatility trading, intraday volatility calculator, trading volatility, implied volatility formula, intraday trading techniques, volatility index, intraday trading, strategies, how to trade in nifty, vix